eeeaddict

Forgive me if I'm wrong since I know almost nothing about accounting, but unless you plan to sell off the asset (seems unlikely for them) Isn't depreciation really only useful for a tax write-off in this case?

rehoult

Tax write-offs are typically done on a different basis than accounting amortization, and tend to allow much more aggressive deductions than accounting rules would allow. In this case, AC appears to amortize their aircraft straight-line over about 10-12 years (it is actually done by component, so engines are different than airframes, but it's a rough number), whereas they can deducted 25% of the unclaimed value of their aircraft (pooled together) each year for tax purposes (CCA Class 9(g) for those interested).

With regards to why accurate amortization matters, it's a matter of producing believable financial statements. If an airline amortizes over 50 years, they could probably show a huge profit each year... until they have to write off the remaining value in year 30 because all the planes are dead. Amortizing over 10 years results in a much lower profit over the first 10 years, and much higher after that. In my experience, I find most Canadian companies tend to be conservative and use shorter amortization periods where they can. I'm generally in favour of it, as it reduces the risk of future write-offs, and encourages management to carefully assess each purchase as it will have an impact to earnings while they are still at the company.

The Lev

True - but you can see what aircraft is scheduled (subject to change), which will give you an idea.

eeeaddict

A lot of the flights I do, YYZ-YVR seem to have one or two 788 flights and rest are other planes. Timing sadly never works out for me :/

Adam Smith

You referred to DC-9s and MD-80s still being flown because they're fully amortised. That has nothing to do with it. If the operating costs exceeded the revenues they could generate, they would be parked, regardless of whether they had been fully depreciated or not.

Depreciation (the correct term for a tangible asset, not amortisation) is a way to match the accounting expense attached to owning an asset to its revenue-generating potential. The problem is that the acquisition cost and accumulated depreciation on the balance sheet are historical and offer no insight as to the future profitability of the asset.

As rehoult pointed out in his excellent post, depreciation is important for producing accurate financial statements. And when purchasing a new asset, the cost to acquire the asset and its expected life are important components in making the purchasing decision. But once an asset has been acquired, depreciation expense is theoretical and should not impact decisions on what to do with an asset, which should be based on the cash flows you can generate from it in the future.

Just because an asset has been fully depreciated doesn't mean it's free. There is an opportunity cost to owning that asset, i.e. it could be sold for cash that could be redeployed somewhere else. So if you can make $1 of profit a year from the plane but could sell it for $10 million, you should sell it.

The reason the US airlines (essentially AA and DL) are still flying MD-80s is that the all-in cost (capital and operating) fits a space in their portfolio of routes. They're cheap to acquire and/or have little resale value because they don't have a lot of flying left in them and have high operating costs.

Meanwhile, a lot of MD-11s and A340s have been parked despite undoubtedly having significant undepreciated book values. No one's saying "geez, we really should fly that A340-500 because we haven't finished depreciating it yet." They're too expensive to operate and therefore better off scrapped or parked in a desert in a lot of cases.

My original statement, that whether the MD-80s are fully amortised is irrelevant to why they're still flying, is 100% correct.

What you're trying to say here, I haven't a clue. Are you saying AC has good accounting policies and that somehow translates to lower costs? Because that's not the case. Cost depends on what you pay for things, not how you account for it.

rehoult's post was much more detailed, but FYI, at a high level, companies always need to calculate depreciation for both financial statement and tax purposes. There's no choice or judgement was to whether or not it's useful.

AC's depreciation policies, as of YE2014 (per annual report):

• Airframes and engines: 20-25 years, with 10-20% residual value
• Spare engines and parts: useful life of the fleet they support, with 10-20% residual value
• Cabin interior equipment and modifications: lesser of 8 years (previously 5 years) or useful life of the plane for owned equipment, term of lease for leased planes.
• Major maintenance: time expected until next major maintenance

I would agree that erring on the side of conservatism is best, but to me, that might be depreciating a 30-year asset over 25-28 years, not 10. Depreciating it over way too short a time also presents an inaccurate picture of the financials, just in a different direction.

canadiancow

I missed lunch with a friend today because of yet another mechanical delay on a 763.

Not only are all my 763 flights delayed for mechanical reasons, but my friends' flights are too.

songsc

I had two planned 763 flights around Christmas, both got mx. Haven't been on 763s for a while now.

YHZ_Flyer

I was to fly on 2 767s in one day back in December from YVR-YYZ-YHZ, and both had issues. First one went mechanical, causing me to switch to a 77L, then the second one the pilots had an indication that the main cabin door wasn't closed when in fact it was fine. Caused about a 1.5 hour delay.

24left

I just flew on Fin 682 C-FCAE

29.1 years old

The water was working, many IFEs were not. The flight was fine, the pilots and cabin crew were awesome and Miss 682 seemed to be in good spirits.

But the dirt around the pod, in the vents, on the sides...don't ask.

She kind of looked at me with that hope of a shower since she knows she's not getting any deep grooming.

rankourabu

One of the top 10 oldest 767s passanger planes still flying in the world.
Joining the ranks of such airlines as Eritrean and Tajik Air.

In fact, it looks like AC has 4/10 oldest non-freighter 767s in the world.

Jumper Jack

Looks I am gonna have to cough up 50 bucks to change the flight....

Please AC Lord please have a schedule change please please please

24left

Yup

https://www.planespotters.net/airline/Air-Canada?p=2

EDIT: I also just flew Fin 844 B789 and she was just delivered in January

.

Nitehawk

Spent the night in 8A on C-FTCA last night. I didn't stay up for any service. I appreciated the classic pod for it's comfort. The SD was also great, extra special attention for SE's.

songsc

I always do the exact opposite. As long as I am not in a hurry, I try to fly on the oldest bird. I did that when CA, CX were phasing out their 747s. I am currently doing the same for AC 767s.

YHZ_Flyer

I really enjoy flying on the older birds as well. I
do enjoy the comfort of the classic pods. I've got a day this month flying HNL-YVR-YYZ-YHZ with all 3 flights on the 763. Kinda looking forward to it, but will definitely be anticipating some delays :P